Forex Flash: Stuck in low gear - Societe Generale

Kit Juckes, Global Head of Currency Strategy at Societe Generale notes that it is yet another slow morning for markets and he notes the decline in European car registrations and a Walmart email warning over tax uncertainty, offer a reminder that the global economy is trundling along in low gear.

He comments that the press is full of warnings about how over priced safe have assets are, and how expensive corporate bonds are. Further, he adds that the most read story on a Bloomberg terminal is about how much single stock equity volatility has fallen and how the last time it was this low, 80 years ago, the market launched into a powerful rally in the coming years. he writes, “The mood of the market is still yield-hungry, but also slightly paranoid that some assets have gone too far - with the notable exception of equities.”

Against this backdrop, he notes that the PBoC pulled a surprise on their local market by draining liquidity through repos, and sending stocks tumbling. He writes, “If China is going to act tough on inflation, CNH/JPY is going to rally. More broadly, here's a reminder that after such a long synchronised decline in interest rates around the world, there are more signs of divergence now, a theme that will persist. And then there's that Walmart e-mail, broadly ignored in Europe yesterday, which warned that the US consumer isn't happy about tax uncertainty.”